Buffett’s company says 2Q profit up 74 percent

August 05, 2011|Josh Funk, AP Business Writer

Warren Buffett’s company said Friday its second-quarter profit jumped 74 percent because the value of its derivative contracts increased and several of its non-insurance businesses improved.
Berkshire Hathaway’s quarterly results were also aided by a one-time gain of $1.25 billion from Goldman Sachs’ repayment of an investment Buffett’s company made at the height of the financial crisis in 2008.
Berkshire said it generated $3.4 billion in net income, or about $1.38 per Class B share, in the quarter that ended June 30. Excluding investment and derivative gains, it earned $1.09 a share.
That’s nearly double last year’s results and better than the adjusted $1.08 per Class B shares analysts had expected.

The Omaha-based company said its revenue grew 21 percent to $38.3 billion in this year’s quarter. A year ago, Berkshire reported $31.7 billion revenue. Buffett is Berkshire’s chairman and chief executive.
Last year, $1.4 billion in pretax paper losses on Berkshire’s derivative contracts clipped the company’s second-quarter profits even though the railroad, insurance and manufacturing businesses performed well. This year Berkshire recorded a $120 million paper loss on its derivatives.
The true value of the derivatives won’t be clear for at least several years because they don’t mature until an average of about 10 years from now. But Berkshire is required to estimate their value every time the company reports earnings. Buffett has said he believes the contracts will ultimately be profitable because the premiums are being invested.
Berkshire’s investment gains and derivative losses combined to add $713 million to this year’s second-quarter profit. A year ago, the company’s derivatives and investments were a $1.1 billion drag on quarterly net income.
Berkshire executives typically do not comment on quarterly earnings reports, and they declined an interview request on Friday.
Stifel Nicolas analyst Meyer Shields said Berkshire’s insurance businesses, particularly Geico, performed a bit worse than he had expected while everything else in Berkshire’s stable of companies performed a bit better than predicted.
“It seems to suggest that we’re not in a slam-dunk economy but things seem to be OK-ish if we look over Warren Buffett’s shoulder,’’ he said.
But Shields said the positive signs in Berkshire’s report probably won’t be enough to calm most investors shaken by recent market turmoil.
Berkshire reported the biggest improvement apart from the investment gains in its railroad and manufacturing businesses.